Weekly Market Review - Insights | Affin Hwang Asset Management

SHARE THIS PAGE:

in this section:

A Brief on Global & Local Markets, Investment Strategy.

Week in Review | 12 october - 16 october 2020

Global Equities Flat As Stimulus Talks Drag On

Global equities mostly languished as ongoing fiscal stimulus talks reach yet another a stalemate amidst a rise in COVID-19 cases globally. The S&P 500 index was barely unchanged with the broader index just up 0.2% last week as stimulus optimism waned. In Asia, the MSCI Asia ex-Japan index inched 0.3% higher.

US Treasury Secretary Steve Mnuchin said he and House of Representatives Speaker Nancy Pelosi were "far apart" on another coronavirus economic relief package, and that a deal would be hard to reach before the US elections on 3 November. According to CNBC, House Speaker Nancy Pelosi had set a 48 hours deadline last Sunday for Congress to agree on a coronavirus stimulus relief bill if it wanted to get it passed before the November presidential election.

While this inevitably delays the renewal of unemployment benefits amid a challenged jobs market, consumption pattern however appears to be picking up well as more people are gradually returning back to the labour force. Retail sales for the month of September grew by a strong 1.7% as compared to the initial forecast of 0.8%. To further add on, the University of Michigan Consumer Sentiment Index has also shown an uptick in US consumer sentiment as the index rebounded to 80.0 from the low of 71.8 in March.

On US data, the latest Consumer Price Index (“CPI”) reading were in line with consensus estimates; coming in at 0.2% month-on-month. Inflation appears to be slowly tapering off from the month-on-month growth of 0.6% in June. Though, the year-on-year CPI reading of 1.7% shows that US inflation isn’t treading too far off from the US Federal Reserve’s target of 2.0%.

Elsewhere, sentiment was dampened by a surge in COVID-19 cases particularly in Europe as it braces for a new wave of infection at the onset of winter. In the UK, Prime Minister Boris Johnson’s government has stepped up local restrictions in parts of England where cases are surging in the hopes of cushioning the economy by allowing the least-affected regions to remain open.

London was moved up to the “tier 2” or “high-risk” level according to Reuters. This bans people from meeting anybody outside their household or “support bubble” – including friends or relatives who help to care for children in any indoor setting.

Meanwhile, Thai equities have taken a beating as protests in the cities led by pro-democracy grassroots movement against the monarchy and the government continue to escalate. Protests demanding the resignation of Prime Minister Prayuth Chan-ocha and curbs on powers of the monarchy have compounded Thailand's woes in recent months after the coronavirus pandemic ravaged its tourism-reliant economy. We have minimal exposure to Thailand for our Asian funds.

Nevertheless, global economic recovery remains on track in 4Q2020 and even in 2021, supporting the view to remain highly invested. In terms of our portfolio positioning, we continue to raise the cash levels for our funds which currently range between 8.0% and 10.0%. This is in anticipation of Ant Group’s IPO that we intend to participate for our Asian funds.

Updates on Malaysia

On the domestic front, the local market was weaker with the benchmark KLCI down 1.7% as rising COVID-19 cases locally forced authorities to tighten movement restrictions to curb the coronavirus spread. Last week, the government enforced the Conditional Movement Control Order (“CMCO”) in Selangor, Kuala Lumpur and Putrajaya in an effort to contain the virus.

However, the government added that economic, industry and manufacturing activities in Selangor, Kuala Lumpur and Putrajaya would still be allowed to operate as usual by following detailed standard operating procedures.

On the political front, the power tussle continues as opposition leader Datuk Seri Anwar Ibrahim met the Yang di-Pertuan Agong last week to present the total number of Members of Parliament that he claimed were supporting him. However, the identities of the lawmakers were not revealed according to a statement from Istana Negara.

On portfolio positioning, we remain cautious on outlook and will continue to monitor developments on both the political and pandemic front. However, we view any broad pullback in markets as a potential buying opportunity to scoop quality names particularly in the export-oriented sectors which have stayed resilient.

Fixed income updates & positioning

The broad macro weakness, coupled with a large influx of bond supplies, prompted a softer session for the Asian credit space last week. Flight to quality traits were apparent across markets in the week as IG spreads ended Friday 2 bps tighter, whereas the HY segment saw spreads widened by some 35 bps.

The drag within the HY space can be partially attributed to looming concerns surrounding Evergrande, who is one of the largest borrowers in the market. The Chinese property giant again fell under pressure following speculations that several of its major lenders may be looking to reduce their exposure in the company. In addition, the company also opted to do a rights issue exercise last week in an attempt to shore up its balance sheet following a liquidity scare which rattled investors over the past month; the funding activity however fell short of their original target of US$1.1 billion. Though having said that, the potential listing of its property services arm should alleviate some of the pressure in terms of cash flow and the firm’s deleveraging plans.

On the supply front, the Asia region added on US$15.6 billion worth of new issuances last week; which marks the highest amount recorded in a week since January 2020. With the majority of issuers looking to lock in on funding ahead of the US elections in November, markets can expect to see a similar trend in the coming week.

Notably, China issued a sovereign debt of US$6 billion in size across 4 tranches (3-, 5-, 10- and 30-year) last week. Despite the large issuance size, the deal managed to garner a strong bid-to-cover ratio of 4.5x while the final pricing tightened by 25 to 30 bps across the bonds. In terms of portfolio action, we entered into the 10- and 30-year sovereign bond as a trading position for some of our regional funds.

Back home, local government bonds advanced in the week as sentiment were lifted after a successful bond auction. Though a portion of the flows, which concentrated on the shorter end, are likely due to renewed expectations of an interest rate cut by Bank Negara Malaysia (“BNM”) amid the recent surge in COVID-19 cases. MGS yields dipped by some 5 to 10 bps across the curve, with the 10-year MGS closing at 2.59% on Friday.

On the government bond auction, the new 10-year MGS benchmark (of RM5 billion in size) was well subscribed; posting a healthy bid-to-cover ratio of 2.0x with an average yield of 2.63%. On the other hand, the corporate segment also saw heavy supplies in the week from the likes of PTPTN, Pengerang LNG as well as Perbadanan Kemajuan Pertanian Negeri Pahang (“PKPNP”) among others. Though moving forward, we expect primary activities to gradually taper off as we enter a jampacked November – in which the US elections, BNM’s monetary policy committee meeting, as well as the tabling of the Malaysia Budget 2021 are scheduled to take place.

At this juncture, caution remains a key theme of ours, and we will be keeping a close watch on these upcoming key events.

Disclaimer

This content has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of Affin Hwang AM.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions.

As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/ or in connection with the financial product.

Affin Hwang AM is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers.

Affin Hwang AM and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities.

Neither Affin Hwang AM nor any of its directors, employees or representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot be excluded.